E-commerce demand fuels FedEx revenues as it prepares for Covid vaccine

FedEx saw its revenues and profits improve in its fiscal first quarter as a surge in e-commerce demand propelled performance.

The express giant saw revenues for the three months ended August 31 increase by 13.5% year on year to $19.3bn, while net income was up 67.8% to $1.2bn and operating income improved by 62.5% to $1.6bn.

FedEx said that operating results increased due to volume growth at FedEx International Priority and US domestic residential package services, yield improvement at FedEx Ground and FedEx Freight, and one additional operating weekday.

These factors were partially offset by costs to support strong demand and to expand services, variable compensation expenses, and Covid-19 related costs incurred to ensure the safety of FedEx team members and customers.

FedEx chief marketing and communications officer Brie Carere said: “In the US, spending that would normally have gone into services has shifted towards goods with goods spending boosted further by pent-up demand. Retail sales are growing again year-over-year and e-commerce is building at [peak] holiday levels.

“Outside of the US, recovery has taken hold as well as coronavirus-related restrictions have been loosened. Manufacturing output is improving off the April low.”

Carere said that FedEx had benefited from reduced air cargo capacity because of its fleet of freighters. She pointed out that freighter capacity now accounts for 66% of total air capacity on the transatlantic lane, 83% on the transpacific and 80% on the Europe to Asia lane.

This compares to pre-covid freighter capacity of 33% for transatlantic, 59% for transpacific and 50% for Europe to Asia.

“Internationally, demand was the strongest on the transpacific lane with lower percentage of PPE shipments month-over-month. Europe’s demand continues to be driven by the growth of e-commerce.”

Another trend was the acceleration of e-commerce. Carere said that pre-Covid FedEx projected that the US domestic market would hit a 100m packages per day by calendar year 2026, but it has now brought this projection forward to 2023.

“E-commerce fueled substantially by this pandemic is driving the extraordinary growth,” she said. “In fact 96% of the US growth is expected to come from e-commerce.”

FedEx added that it was also prepared for the distribution of a Covid vaccine.

President and chief executive of FedEx Express Don Colleran said: “We look at this really as a supply chain design opportunity first of all for many months as you can imagine we were talking with the major manufacturers and customers in the healthcare space, along with HHS CDC and the FDA. So, this will be clearly a global team effort.

“What’s unique about this opportunity when you think it through is, there is very good a chance that, lot of ingredients are going to be made in one country. The manufacturing of these vaccines are in other country and other region and the consumption or the need for this is global. And this is why we are uniquely positioned.”

He pointed out that FedEx serves 220 countries and has more than 600 aircraft in its network.

Look at the peak season, the company said it was preparing for a “peak like no other” and would implement several peak surcharges to cover the increased cost of delivering shipments.